Not all investors happy with diversifying strategies

Although many investors say that their diversifying strategies are paying off, more than a third of the investors using investment grade credit and 40% of hedge fund investors are “not satisfied” with their performance during the current downturn, according to bfinance.

The company conducted a survey among 260 asset owners in 28 countries, with total assets estimated at well over $2.5 trillion, which aimed to capture how satisfied investors were with their diversification during the current COVID -19 crisis.

The study found that three in five investors using investment grade credit are either ‘somewhat’ or ‘very’ satisfied with its performance during the downturn, with 35% ‘not satisfied’ and European investors distinctly less happy than US counterparts.

Further to that, among the 46% of investors using multi-asset strategies, 57% were either ‘somewhat’ or ‘very’ satisfied (7% ‘very satisfied’) with their performance through the crisis so far, while 35% are ‘not satisfied’. Among hedge fund investors, 46% said they were ‘somewhat’ or ‘very satisfied’ while 38% were ‘not satisfied’.

However, among the 55% of respondents who had some explicit equity downside protection (hedging) in place prior to the crash, the majority (77%) were either ‘very’ or ‘somewhat’ satisfied with how those hedges had performed.

As far as portfolio rebalancing was concerned, the survey found that over the last three weeks, 11% of investors made ‘significant dynamic or tactical changes’ to portfolios, with a third making ‘minor dynamic/tactical adjustments’.

Following this, most of respondents admitted that they aimed to rebalance to prior weights, with a significant minority (27%) having reported that they wanted to rebalance to the usual asset allocation but finding that ‘rebalancing is challenging’.

According to the survey, optimists and pessimists were balanced in almost equal measure when it came to expectations for the ‘most likely outcome’ from an economic standpoint.

In total, 31% of the group expected a ‘prolonged recession’, while 32% sat on the ‘faster recovery’ side of the fence, the firm said.

At the same time, liquidity risk remained the dominant concern, and downside risk a close second, for investors over the coming weeks. Although bfinance noted differences between groups (e.g. pension fund versus insurer) and between individuals of each group, immediate solvency and funding issues were somewhat less of a priority, which may well suggest an expectation that the worst of the decline may be relatively short-lived.